File Ref. : TRA CR 1506/2

LEGISLATIVE COUNCIL BRIEF

Import and Export Ordinance (Chapter 60)

IMPORT AND EXPORT (STRATEGIC COMMODITIES) REGULATIONS (AMENDMENT OF SCHEDULE 1) ORDER 2017

INTRODUCTION

The Director-General of Trade and Industry (DGTI) has made the Import and Export (Strategic Commodities) Regulations (Amendment of Schedule 1) Order 2017 (“the Order”) to amend Schedule 1 to the Import and Export (Strategic Commodities) Regulations (Cap. 60, sub. leg. G) (“the Regulations”) to reflect the changes adopted by international non-proliferation regimes. The Order is at Annex A. JUSTIFICATIONS 2. The Regulations empower the Government to impose licensing control on the import, export, transshipment, and in some cases, transit of strategic commodities. The licensing system is administered by the Trade and Industry Department (TID) and enforced by the Customs and Excise Department. 3. Schedule 1 to the Regulations sets out the strategic commodities under control, which include materials, equipment, software and technology capable of being used for both industrial and military purposes. Schedule 1 has been drawn up on the basis of the control lists adopted by various international non-proliferation regimes and convention, including the Wassenaar Arrangement, the Australia Group,

Annex A

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Annex B

the Missile Technology Control Regime, the Nuclear Suppliers Group and the Chemical Weapons Convention. Under section 6B of the Import and Export Ordinance (Cap. 60), DGTI may, by order published in the Gazette, add or remove an article or class of articles to or from Schedule 1. 4. DGTI from time to time amends the list of strategic commodities under control in Schedule 1 to the Regulations having regard to changes to the control lists adopted by the various international regimes and convention. The last amendment of Schedule 1 came into effect in April 2015. The Order 5. The Order amends Schedule 1 to the Regulations to reflect the changes to the control lists of strategic commodities adopted by some international regimes which have come into effect after the last amendment of Schedule 1 in 2015. In tandem with technological developments, the amendments relax the control over items in certain categories of dual-use strategic commodities, notably the categories of electronics, computers, as well as telecommunications and information security products. At the same time, new control is imposed on certain categories of dual-use strategic commodities, including the categories of sensors and lasers, navigation and avionics, and nuclear materials, facilities and equipment. We also take the opportunity to make minor textual amendments concerning the description of some items as set out in Schedule 1 for the sake of consistency and clarity. These textual amendments do not affect the substance of the control list. A summary of the major amendments are set out at Annex B. 6. In Hong Kong, electronics, computers, as well as telecommunications and information security products are commonly traded strategic commodities, whereas the trading activities of other categories are insignificant. Hence, after the Order has come into effect, the trade will be relieved of the requirement to obtain licences from TID for the import and/or export of some of these commonly traded goods. This will be welcomed by the business community.

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LEGISLATIVE TIMETABLE 7. The Order will be gazetted on 24 March 2017 and tabled at the Legislative Council on 29 March 2017. 8. We plan to bring the Order into effect on 3 July 2017 upon gazettal of a commencement notice on 26 May 2017. This will enable the trade to benefit from the relaxation of control at the earliest opportunity. IMPLICATIONS OF THE PROPOSAL 9. The Order has economic implications as set out in Annex C. The Order is in conformity with the Basic Law, including the provisions concerning human rights. It will not affect the binding effect of the Regulations. It has no financial, civil service, productivity, environmental or sustainability implications. PUBLIC CONSULTATION 10. The amendments made by the Order are technical in nature. Public consultation is considered not necessary. We have briefed representatives from the trade on the amendments through TID’s Customer Liaison Group for Strategic Commodities and they have raised no objection to them. PUBLICITY 11. A press release will be issued when the Order is published in the Gazette on 24 March 2017. TID will announce the revisions of the control list through a trade circular, as well as through its web portal on the day of gazettal. A spokesperson will be available for answering media enquiries.

Annex C Annex C

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ENQUIRIES 12. For any enquiries on this brief, please contact Ms. Vien YUEN, Principal Trade Officer of TID at 2398 5554. Trade and Industry Department 22 March 2017

Annex A

IMPORT AND EXPORT (STRATEGIC COMMODITIES) REGULATIONS (AMENDMENT OF SCHEDULE 1) ORDER 2017

A copy of the captioned order is attached.

Annex B

Major Changes to be Brought by Import and Export (Strategic Commodities) Regulations

(Amendment of Schedule 1) Order 2017 I. New Items to be Controlled Category 0 – Nuclear Materials, Facilities, and Equipment 0A001(k) External thermal shields of nuclear reactor.

0B004(b)(9) Ammonia synthesis converters or synthesis units

specially designed or prepared for heavy water production utilising the ammonia-hydrogen exchange process.

Category 1 – Special Materials and Related Equipment 1B234 High explosive containment vessels, chambers,

containers and other similar containment devices designed for the testing of high explosives or explosive devices.

1C002(c)(2)(h) Metal alloy powder or particulate material made in certain controlled environment.

1C111(a)(2)(b) Boron powders.

1C111(a)(6) Certain replacement fuels for use in spacecraft propellants.

1C111(b)(6) Certain polymeric substance.

1C241 Rhenium and related alloys.

1C354 Certain plant pathogens.

Category 2 – Materials Processing 2B201(c) Certain machine tools.

2B233 Bellow-sealed compressors and vacuum pumps.

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2B352(h) Certain spray drying equipment.

2D003 Software relating to optical finishing equipment.

Category 3 – Electronics 3A229 Certain micro-firing sets.

3A234 Certain striplines.

3D225 3E225

Software and technology capable of releasing constraints of frequency changers.

Category 6 – Sensors and Lasers 6A001(a)(2)(g) Certain accelerometer-based hydro-acoustic sensors.

6A005(e)(3) Certain fibre laser components.

6A205(g) Carbon monoxide lasers.

6D003(d) Software specially designed for certain optical

control equipment.

6D203 Certain camera software.

6E203 Certain camera technology.

Category 7 – Navigation and Avionics 7D005 Certain decrypt software.

7E004(b)(7) 7E004(b)(8)

Technology required for deriving certain functional requirements for fly-by-wire systems.

Category 8 – Marine 8E002(c)

Technology for the development or production of certain surface vessels.

Category 9 – Aerospace and Propulsion 9A004 Certain spacecrafts.

9A106(e) Combustion chambers and nozzles usable in missiles, space launch vehicles or sounding rockets.

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9A112 Certain unmanned aerial vehicles.

9A121 Certain missile/rocket connectors.

9D005 Software specially designed or modified for the operation of certain spacecrafts.

9E003(j) Technology for the development of wing-folding systems designed for certain aircrafts.

II. Removal / Relaxation of Controlled Items Category 0 – Nuclear Materials, Facilities, and Equipment 0B001(i)4 Liquid metal handling systems specially designed or

prepared for plasma separation process.

Category 1 – Special Materials and Related Equipment 1B227 Ammonia synthesis converters or ammonia synthesis

units.

1C001(b) Note Certain materials capable of absorbing electromagnetic waves when they are specially designed or formulated for laser marking of polymers and laser welding of polymers.

1C001(c) Note Intrinsically conductive polymeric materials when they are in liquid form.

1C008(b) Thermoplastic liquid crystal copolymers.

1E002(d) Technology for the production of certain synthetic fibres.

Category 2 – Materials Processing 2B001 Note 2(e) Special purpose machine tools limited to the

manufacture of dental protheses.

2B001 Certain machine tools for turning and milling. Category 3 – Electronics 3A001(a)(7) Certain field programmable logic devices.

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Category 4 - Computers 4D001(b)(1) 4E001(b)(1)

Software and technology specially designed or modified for the development or production of digital computers having specified performance level

4D002 Software specially designed or modified to support technology controlled under 4E.

Category 5 - Part 1 Telecommunications 5D001(b) Software specially designed or modified to support

technology controlled by 5E001.

5E001(c)(1) Technology for the development or production of equipment employing digital techniques designed to operate at a certain digital transfer rate.

Category 5 - Part 2 Information Security 5A002 Note Routers, switches or relays, as well as the general

purpose computing equipment or servers, where the information security functionality is limited to the tasks of "Operations, Administration or Maintenance" ("OAM") implementing only published or commercial cryptographic standards.

5D002(c) Software limited to the tasks of "OAM" implementing only published or commercial cryptographic standards.

Category 6 – Sensors and Lasers 6A004(d)(4) Certain optical control equipment.

6C005(b) Alexandrite.

Category 7 – Navigation and Avionics 7D003(c) Certain integrated avionics systems source code.

Category 8 – Marine 8A001 Certain surface vessels.

8A002 Certain marine systems, equipment and components.

Annex C

ECONOMIC IMPLICATIONS

The relaxation of control over certain items in the three

categories of strategic commodities traded in Hong Kong, i.e. electronics,

computers and telecommunications and information security products

will relieve the relevant traders from the burden of applying for import

and export licences for the trading of such products. This will help raise

operational efficiency and indirectly lower the cost of operation of the

relevant businesses. On the other hand, the imposing of control on new

items should not have significant effects on the import/export trade as

these items are not commonly traded in Hong Kong.